BioScrip's PBM Services Continue to Suffer - Analyst Blog

On Jul 10, we issued an updated research report on Bioscrip, Inc. ( BIOS ) - a provider of home infusion and pharmacy benefit management (PBM) services.

Yet again, we are disappointed with the poor first-quarter bottom-line performance at BioScrip. Adjusted net loss from continuing operations of 17 cents per share was much wider than the year-ago adjusted loss per share of a penny. The results also considerably lagged the Zacks Consensus Estimate of a loss of 4 cents.

Although year-over-year revenues showed an improvement, the strong growth in Infusion revenues was offset by a 31.9% slash in revenues at the PBM Services segment.The decline was due to termination of a large but low-margin contract with a PBM client in the first quarter of 2013 and decline in its discount card revenues.

Moreover, the company has also revealed its expectations regarding near-term revenue dissynergies from acquisitions. According to the company, it may take another two to three quarters in bringing the out-of-network patients into BioScrip's network.

On the flip side, margins continue to be under pressure, which remains a major headwind for the company. Huge gross margin contraction in the quarter was primarily due to a shift in the therapy mix in the Infusion Services segment and adverse business mix as revenues from the high-margin PBM business continue to decline.

Further, reimbursement issues continue to hurt its performance. The competitive landscape also remains as an overhang.

Nonetheless, we are upbeat about BioScrip's encouraging performance in the Infusion business. Going forward, the Infusion franchise should continue to grow via organic and inorganic means. We are encouraged to note that the company has been taking several steps to emphasize more on areas with long-term growth potential and high returns. We believe the recent acquisitions and sellouts will be significantly accretive to the top line.

Other Stocks to Consider

BioScrip currently carries a Zacks Rank #5 (Strong Sell). Although we hold a bearish outlook on the stock at present, some better-ranked stocks in the broader medical sector that look promising at the moment are Masimo Corp. ( MASI ), Hologic Inc. ( HOLX ) and Intuitive Surgical, Inc. ( ISRG ). While MASI sports aZacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy).

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